Co-op Bank is facing a £3.6bn gap between the value it places on its loan
portfolio and what they would be worth if it had to offload the book, it can
be disclosed.

The struggling lender downgraded the “fair value” of its loan book by £4.2bn between the end of last year and June, wiping nearly 13pc off the value of its £29bn portfolio.

Cutting the value of its loans means the difference between the assumed market price of the loans and the “carrying value” of what the bank reckons them to be worth has reversed from a £37m credit to a £3.6bn deficit in just six months.

In the notes to its latest accounts, the Co-op said the change came after the bank “reviewed and improved the methods used to calculate the fair values”.

“That is an enormous change in value and raises serious questions about the way the bank previously accounted for the book’s value,” said one banks analyst.

In the same accounts last week, the Co-op Bank revealed a £496m write down of its assets. However, the lender has warned that further provisions for bad debts are likely.

Co-op Bank bondholders have become concerned in the deterioration in the lender’s business, pointing out that large new losses on the loan book could destroy large amounts of the new capital it is attempting to raise.

The bank is trying to raise £1.5bn to recapitalise itself with an “exchange offer” that will see bondholders contribute £500m through haircuts in the value of their investments.

Co-op said in a statement: "At the time of the interim results announcement last week, The Co-operative Bank underlined the need for the £1.5bn Capital Action Plan, announced in June to stabilise the Bank, which we reaffirmed and which remains on track."